Closing Maintenance and Engineering Brazil will cost TAP up to €110 million

Fernando Pinto was the CEO of TAP when he acquired Varig’s Maintenance and Engineering unit in 2006. The deal proved ruinous, accumulating losses for over a decade, pushing the airline’s accounts into the red. It will finally be liquidated. But until it closes, it will come at a high cost.

The TAP Group said in a statement on Wednesday that it had decided to shut down the Maintenance and Engineering Brazil (TAP ME Brasil), as provided for in the restructuring plan approved in December by the European Commission. An option that means it has not been possible to find an interested party to buy the company.

The liquidation will have costs. The Minister of Infrastructure said in an interview with ECO on 23 December that closing down TAP ME Brazil will cost “at most, €110 million”. “If we had taken this decision much longer ago, we would have saved millions of euros: 800 to 900 million,” he added.

This is the amount that TAP SA, which owns the airline, lent to TAP SGPS to cover the losses caused by maintenance in Brazil. “Who financed this was TAP SA, lending to TAP SGPS. That’s why when we went to Brussels some people said that we could separate the two and only take TAP SA to Brussels. Because TAP SGPS owed TAP SA €800 million,” explained Pedro Nuno Santos.

Christine Ourmières-Widener was in Brazil in November, visiting the operation in what is the airline’s primary market abroad. The sale or liquidation of TAP ME Brasil was one topic on the agenda.

According to figures gathered by Lusa, the Brazilian maintenance company received €538 million in financial injections from the group between 2010 and 2017. The CEO told the agency that the company currently has 500 workers.

The acquisition of the former Varig Manutenção e Engenharia (VEM) was closed by Fernando Pinto in 2006, for $24 million, in the death throes of the Brazilian airline. Besides VEM, Varig Logística was also acquired as part of a plan that was supposed to lead to the acquisition of Varig itself, where the then CEO of TAP had worked for years.

The purchase, for $24 million, was advised by the lawyer Diogo Lacerda Machado, who would later become a director of TAP. “The price of VEM was immensely low because it resulted from a very adverse circumstance of Varig, which desperately needed financial means, and the only chance was to offer [the companies] at an outrageously low price because their need [for money] was for the next day,” he said in 2016 at a hearing in Parliament. “VEM has extraordinary potential and a hugely interesting value.”

Despite successive restructurings that slimmed down the staff that reached over 4,000 workers, the potential was never realised. TAP ME Brasil made losses of 31.9 million in 2016, 50.1 million in 2017, 51.6 million in 2018, 14.7 million in 2019 and 31.3 million in 2020. It has never had a positive year since it was acquired.

The purchase would be the subject of a judicial investigation, which began in 2010, targeting Fernando Pinto and four other former directors, for suspected mismanagement, influence peddling, laundering, passive corruption, active corruption, economic participation in business, swindling, prevarication and abuse of power. The Public Prosecutor’s Office acquitted all the defendants in October.

After 15 years, TAP ME “will not accept new requests for maintenance services,” the group said in a statement. Services already contracted or in progress “will be carried out normally,” as agreed with customers, it added.

TAP said that the decision “does not interfere with air passenger transport operations in the country,” which is its main foreign market, accounting for between 25% and 30% of revenues. On the contrary, it says that it expects to expand weekly flights to the 11 state capitals where it operates.

The European Commission gave the green light to TAP’s restructuring plan on December 21, however, forcing the company to give up 18 slots at Lisbon airport and sell its stakes in Cateringpor, Groundforce and Manutenção & Engenharia Brasil. In the case of the latter, the possibility of liquidation was also on the table, as will happen.